Sovereign guarantee and manufacturers and exporters

Usually the large risks of the economy also require their distribution under a stress test.
If we remember, the risks that seemed reasonable during the pandemic period for the private sector just two or three years ago may no longer be so today.

For a few years now, manufacturing business projects have been suffering from increased and unsustainable costs, declining revenues, and sometimes even a lower expectation of return on investment. But the year 2023 culminated and affected them, making them even more vulnerable than at the time of the pandemic lockdown.
This sector is already feeling more financially helpless from the external crises, but also the crises carried and superimposed by the Albanian politics.

Parts of the sector (agriculture, export producers) are redefining operational and investment capacity as they are sufficiently hit by internal risks (informality, political patronage, government intervention in the market, rising costs, declining labor market supply, devaluation of the euro). Naturally they will seek to transfer more risk to the government.

In order to vent these strong producers’ tensions, it is thought that the government’s latest decision on the sovereign guarantee for a category of businesses (manufacturers of confections and agro-industry for export) will have an impact. This decision of the government probably comes after many months of devaluation of the euro that gave strong signals as early as 2022 and in 2023 it exploded, occupying territories that the formal Albanian market had under its control until then.

Although the sovereign guarantee essentially does not provide “oxygen” for many of the export problems (in quantity and time), the importance of its adoption is at least indicative of a policy that is struggling to accept its responsibilities.

In these difficult times for public spending, the government’s ability to take on additional risks and contingent liabilities such as sovereign guarantees may actually be limited. Especially if the existing guarantees that the budget holds under the armpits are at risk of being added to other sectors that suffer the consequences of internal problems and together are creating increasing pressure on the government.

The risk assessment by the government and the decision to use the guarantee is similar to the time of crisis, realizing that the old business problems are not only not solved, but are being negatively affected by the new problems that are penetrating the market.

In either case, they should be used strategically to cover specific or targeted risks based on market sentiment for carefully selected, economically viable projects under an appropriate governance and risk management framework.

In the reality of our economy, after the end of the first quarter of 2024, it is seen that the policies left in the middle of implementation, as well as the measures of unrelated institutions are weakening their role on the economy.

From the beginning of April 2024, a second wave of devaluation of the euro seems to be starting to rise. But, this time, not the exporters, but the citizens with their savings, as well as all activities related to tourists, who have built work on their incomes, it seems that they will have to raise prices, or they will close businesses.

Meanwhile, the central and local government, as well as independent institutions, are directly affecting the increase in costs that they are dictating for dough manufacturers, bars, restaurants, hotels, for agro-producers and agro-processors, as well as the increase in costs in general for water and sewage seems to you will receive a significant part of those profits planned according to the announcements for the increase of foreign visitors.

This year’s exam and the grade that tourist services will receive is one of the most difficult, after the failing grade in last year’s exam for most exporters.

Throughout this season of economics exams, it seems that the government, in the role of lecturer, will give copies, because otherwise, hardly any honest business will take the season.

And in all this situation with many impossibilities, it is possible that the policy of guaranteeing soft debt for businesses resembles the policy of formalization with bank cards for pensioners.

In reality, the problem for everyone is falling income and what is left after spending.
This is exactly what the government is overlooking by telling us more and more often that at least its income and budget health is better than before.